Beyond COvid: The Digest

Wealth taxation

July 27, 2020
SUMMARY
  • The question of future tax rises remains high on the political agenda, with increasing cross-party interest in the idea of wealth taxation.
  • Our Focus section this week covers the latest movements on wealth taxation from this weekend, Sunak's capital gains review, progressive and conservative arguments for inheritance tax reform and the popularity of wealth taxes.
  • Highlights from our In Brief and Reflections sections include research on the role of competition policy in the recovery from Covid-19, a report on Data and the Future of Work, and writing on how the financial system is geared towards creating debt for the financial gain of creditors at the expense of financial stability.

Focus: wealth taxation

  • This weekend, former Chancellor Philip Hammond argued that the Government "should not rule out" a wealth tax as part of its coronavirus response.
  • ~~A wealth tax, if modelled on e.g. Spain, Norway or Switzerland's, would involve a levy of <1% on an individual's net assets above a certain wealth threshold.
  • ~~Lord Gus O'Donnell, former Cabinet Secretary under Blair, Brown and Cameron, told the Sunday Times this weekend that: "private wealth is... so large that even at a relatively low rate, a wealth tax could make a significant contribution to revenue.
  • ~~The Guardian editorial board came out in favour of a wealth tax this weekend, arguing that the extent of UK's wealth inequality impedes fairness and social mobility.
  • ~~An alternative approach has been proposed by Sky News' Ed Conway - a "one-off", "nuclear" capital levy as a "radical way to solve the coming fiscal crisis".
  • ~~Earlier this month, Lord O'Donnell and tax experts from a range of disciplines launched the UK Wealth Tax Commission to explore the viability and desirability of a wealth tax in the UK. You can sign up to their mailing list on their website.
  • Chancellor Rishi Sunak ordered a review into capital gains tax (CGT) earlier this month, with some analysts suggesting this opens the door to higher taxes on the wealthy in the future.
  • ~~The Telegraph reports that Sunak is particularly interested in how capital gains are taxed compared to other kinds of income.
  • ~~A 2019 report from the Institute for Public Policy Research (IPPR) argued that taxing income from wealth less than income from work is fundamentally unfair, and that equalising capital gains and income tax rates would raise ~£90bn for the Chancellor over 5 years.
  • ~~Last week, the Social Market Foundation proposed that the Chancellor introduce a new "property capital gains tax" - a 10% charge on sellers' profits - and use the money to scrap inheritance tax on property and stamp duty.
  • The CGT review is a follow-up to last year's review of inheritance tax, whose proposals (summarised by the Financial Times here) are yet to be acted on.
  • ~~ Research last week from the Institute for Fiscal Studies found that inherited wealth is now a far more important determinant of lifetime resources than for previous generations.
  • ~~Proposals for reform include IPPR's suggestion of abolishing inheritance tax in favour of a tax on lifetime gifts received, while Tim Pitt - former senior advisor to Philip Hammond and Sajid Javid - presents the Conservative case for inheritance tax in his essay on tackling economic inequality.
  • A Survation poll of 3000 suggests popular support for higher taxation, including wealth taxation. 63% of respondents (57% of Conservatives) supported an annual wealth tax, while 2/3 supported equalisation of capital gains and income tax.
  • ~~A coalition of "super-rich" individuals has also come out in support of "immediate, substantial and permanent" tax increases on the very wealthy.

In brief

  • The think tank Autonomy has proposed a strategy for helping the retail, hospitality and arts sectors transition out of furlough, based around moving to a four day week. (Daily Mail coverage here.)
  • Lord Andrew Tyrie summarises the Competition and Market Authority's response to Covid-19 thus far and outlines the longer-term role of competition policy in recovery for IPPR.
  • A new report on Data and the Future of Work from Common Wealth analyses the impact of Covid-19 and 'datafication' on workers, and proposes an updated set of employee protections and rights (City AM piece from Common Wealth Director Mat Lawrence).
  • Research from IPPR suggests that the NHS entered the pandemic in "a deeply fragile condition" and would have been in "far better shape" to cope with Covid-19 had the £1.5bn spent on crisis measures (e.g. Nightingale hospitals) been invested earlier in community care.
  • The Resolution Foundation's 2020 Living Standards Audit has highlighted the risks to lower-income households posed by increased indebtedness and planned cuts to social security in 2021.
  • Economists for Future interviewed nine leading economists to ask what it would take for the economics profession to seriously engage with the challenge of environmental breakdown.

Reflections

  • The Economist argues that Covid-19 is forcing a paradigm shift within macroeconomics, albeit of indeterminate direction.
  • SPERI's Ed Pemberton argues that the pandemic has shown our need to rethink the trade-off between efficiency and resilience if we are to tackle environmental breakdown.
  • Biden's environmental commitments are a "Green New Deal in all but name", marking a major shift in the Democrats' approach to climate change, argues Julian Brave NoiseCat in the Guardian.
  • The Jubilee Debt Campaign criticises the failure of G20 Finance Ministers to build on commitments made earlier this year around debt suspension and cancellation for the world's poorest countries.
  • Katharina Pistor, Professor of Comparative Law at Columbia University, critiques the "turning of credit intermediation into a debt mint" - that is, the behaviour of a financial sector that prioritises the creation of debts for the financial gain of creditors, despite the effects on debtors and on financial stability. (Project Syndicate)

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The accelerating pace of environmental breakdown
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When and how should we raise taxes?
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What constitutes a green recovery and how can it be delivered?
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